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Money Stimulates Debate in States Over Plan's Goals

By Alec MacGillis
Washington Post Staff Writer
Monday, March 9, 2009

As tens of billions of dollars in stimulus funds begin to flow across the country, states and federal agencies are gripped by disputes over whether the money is being used in ways that violate the letter or spirit of the legislation, battles that raise new questions about precisely what the intent of the legislation was and that threaten to delay the infusion of funds into the staggering economy.

Kansas may save some of the state funds that will be freed up by stimulus money it is getting -- even though putting money in the bank would not stimulate the economy. Texas is spending nearly a tenth of its transportation funding on a long-delayed highway loop around Houston, despite criticism that the project goes against President Obama's call to move away from oil dependence. West Virginia wants to expand access to Medicaid but is still waiting for an answer about whether that goal is being encouraged under the law.

In many ways, the questions swirling at the state level are a continuation of unresolved debates in Washington over the purpose of the $787 billion package -- whether it was meant solely to boost the economy or also to lay the groundwork for longer-term reforms and transformation.

"There's definitely a lot of confusion in state capitals about what the Recovery Act means," said Chris Whatley of the Council of State Governments, who is traveling the country dispensing advice to state officials. "They're making budget decisions now, and there's still this base level of uncertainty. . . . There's an inherent tension in the differing goals in the bill."

In many states, the debate revolves around what to do with the state money that has been freed up by an $87 billion stimulus provision to increase for two years the share of Medicaid costs covered by the federal government.

Patient advocates and medical providers say the provision was clearly intended to expand Medicaid spending, both to stimulate the economy and to help people in need. States, they say, should expand the services that are covered, increase provider payments, broaden eligibility rules or keep the freed-up state money on hold in anticipation of higher Medicaid demand.

In Virginia, the state hospital association urged the state to set aside much of the $600 million made available by the increased federal share to cover an anticipated surge in Medicaid costs in the next few years, which will be a particular challenge once the stimulus funds dry up. But the governor and legislature have agreed instead to use the freed-up money to balance the current overall budget to prevent layoffs in other areas -- a course most other states are also pursuing.

Katie Webb, senior vice president of the hospital association, said the state's decision was unsurprising but shortsighted, while legislators counter they had no choice but to cover the current gaps. "It doesn't prepare us for what's going to happen," Webb said. "I guess I thought the intent of Medicaid stimulus was to use the money for Medicaid."

This debate has perhaps been most stark in Kansas, where Republican leaders in the legislature want to use some of the state money freed up by the increased federal Medicaid share not just to cover other spending but also to comply with a state requirement that its budget contain a small end-of-year cushion. It is unclear whether this is allowed under the stimulus rules, which forbids states to use the money to fill "rainy day" funds.

But Jay Emler, chairman of the Kansas Senate's Ways and Means Committee, said he was all for socking the money away. He said that after he lost his corporate job 10 years ago, he was careful to save any additional money he got in the years afterward, and that the state should respond the same way.

"When [the stimulus] runs out, we're going to be in a world of hurt . . . so I'd rather see this go into a fund that we would not be able to access except for emergencies," he said. "While this is a 'stimulus' package, that's not how I run my personal life. I don't know a whole lot of people who go out and spend if they realize that in two years they're not going to have money."

This approach dismays advocacy groups in Kansas. The state, they say, would do much more to stimulate the economy -- and improve its fiscal prospects -- if it spent the freed-up state money on shortening the waiting list for people with developmental disabilities, raising pay for direct-care workers or lowering the income threshold for Medicaid.

"We think [the Republican plan] violates the letter and the spirit of the law," said Rocky Nichols, a former Kansas state legislator who runs a disability rights organization. "This is a Medicaid stimulus provision, not a 'bail out the state deficit' provision. . . . If they hoard it, it's not going to do a thing."

In Kentucky, which plans to use most of the freed-up state money to balance its budget, Terry Brooks, head of a children's health advocacy group, said he recognized the budgetary demands but hoped there could be at least some way of innovating with the money, such as increasing outreach to families that qualify for the children's health insurance program. "Is this simply switch-and-bait money for us to maintain the status quo, or can we use it to really be a catalyst?" he said.

There is also confusion in the handful of states that are considering broadening Medicaid eligibility. To keep states from trimming people from their Medicaid rolls, the legislation decrees that states maintain the same eligibility rules they had last summer if they want the increased federal money.

But West Virginia and South Dakota, which want to take advantage of the stimulus to expand Medicaid eligibility, are struggling to determine whether that rule is both a floor and a ceiling -- that is, whether states that make their rules more generous will receive the higher federal match for the newly enrolled residents. The states hope that is the case, because the federal government encourages broader Medicaid coverage. But they have yet to get a clear answer from Washington, where the relevant departments are still waiting for most of their top appointees to be put in place.

In several states, the biggest fights over the bill's intent have involved transportation. In Seattle, Mayor Greg Nickles is upset that most of the state's new transportation funds are being disbursed to small road projects outside Seattle and that the city will not get the $50 million it expected to redevelop a road in a rejuvenated part of downtown. Massachusetts may use some of the highway money it is getting for public transit -- the law's fine print allows for that, a provision most states are disregarding.

In Texas, "smart growth" advocates are outraged that the state Transportation Department has decided to spend $181 million to build a 14-mile stretch of the "Grand Parkway," a proposed 180-mile loop beyond Houston's outer suburbs. The advocates say it is hard to accept that a highway long sought by developers is at last getting its decisive boost from the stimulus legislation passed by an administration that says it wants to move the country past sprawling development patterns.

The state should put the money toward a proposed toll road and light-rail line in the highly congested U.S. 290 corridor running into Houston, the advocates say.

Texas "is using stimulus money that one would assume would be for something transformative to instead build the biggest boondoggle of all time," said David Crossley of the group Houston Tomorrow. Developers "had given up on this project, and suddenly it's possible because of a president coming up with money to transform transportation," he said. "It's pretty ironic."

But the Grand Parkway's supporters say they are the ones true to the legislation's intent -- of stimulating the economy quickly with projects that are "shovel-ready."

"Because of the time constraints placed on stimulus spending, we had to select from projects we had already been working on," said Chris Lippincott, a spokesman for the Transportation Department. "We will use these funds to solve transportation problems, but it is clear to us that the main goal is to put shovels in the dirt and money in people's pockets quickly."

Debates over the law's intent are also taking place within federal agencies. Interior Secretary Ken Salazar instructed his division chiefs last month to focus their spending on renewable-energy projects. This took some of them aback, because the law lays out clearly what the money is to be spent on -- things such as reclaiming abandoned mines, maintaining trails and upgrading volcano-monitoring equipment.

Interior spokeswoman Kendra Barkoff said Salazar's instructions were not in conflict with the law. Some of the work laid out in the law, such as new buildings, could be done with energy goals in mind, she said. And the Senate report for the stimulus granted the Bureau of Land Management leeway to spend some of its money on new staff to speed up the permitting process for wind and solar projects on federal lands. "There's some flexibility," she said.

To some economists, the debates over the exact intent of the law are beside the point. Most important, they say, is to spend the money, even if it is for a different purpose than what the law decrees. That is a hard mind-set for ever-prudent state budget officers to adopt, said Scott Pattison, director of the National Association of State Budget Officers.

"As finance people, we try to be very thoughtful and considered about how it's spent," he said. "Whereas an economist will say, 'Listen, I understand where you're coming from -- but from an economic mind-set, it just has to get out there.' "

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